Jargon Buster

Find out what the jargon actually means…

APR (Annual Percentage Rate) – APR or the Annual Percentage Rate is the interest rate charge on your loan. This figure takes into account not only the interest payable over the term of the loan but also any other related charges or fees. As such it’s the best measure for comparing the cost of borrowing from one lender to another.

Arrears – When a borrower has fallen behind on repayments.

Attachment of Earnings – when deductions are made directly from the debtor’s earnings, to pay creditors.

Bad Credit – Common practices that can damage a credit rating such as making late payments, missing payments, exceeding card limits or declaring bankruptcy

Bankruptcy – is legal procedure for dealing with debts when you cannot pay

Broker – Someone who finds financial products that are best suited to an individual’s needs

Budget/Financial Statement – Knowing what your income & expenditure is each month and planning your finances within these limits

Budget Deficit – The amount on a budget by which your expenditure exceeds your income before offers of payment on non-priority debts are made.

Budget Surplus – The amounts on your budget by which your income exceeds your expenditure before allowing for offers of payments on non-priority debts.

Budgeting – Being aware of your spending patterns and reducing outgoings in some areas to save for other items such as holidays and special occasions etc. Sometimes budgeting is essential to make sure household bills are paid.

Charging Order – This secures the debt on your home usually with conditions concerning payments. A charging order has the effect of converting an unsecured debt into a secured one.

Creditor – Someone to whom you owe money.

Credit Rating – A credit scoring systems which give points to items of information given on your application form when applying for credit.

County Court Claim Form – Initial form sent by the court to a debtor when a creditor initiates court action.

County Court Judgment (CCJ) – A court order against a borrower demanding they pay back money owed. A County Court Judgment gives details of the court’s decision of a creditor’s attempt to recover a debt in a Civil (County) Court.

Credit Agreement – A signed agreement between the lender and borrower, outlining terms and conditions relating to the loan.

Credit Reference Agency – A company that provides lenders with individuals credit details and history.

Credit Score – An applicants credit status based on searches carried out by credit reference agencies.

Creditor – Someone you owe money to.

Debt – Any money owed to a company or person. This includes mortgages, overdrafts and catalogues.

Debtor – Someone who owes money.

Debt Consolidation – This is taking a new loan and using the proceeds to pay off several smaller debts.

Debt Management Plan (DMP) – This is a repayment scheme for people unable to pay their creditors the full contractual payments.

Debt Relief Order (DRO) – A means of debt relief for people, own less than £15,000 who don’t own their own home have no fixed assets of more than £300 and are on a low income. Cost £90, per individual.

Debt Collection Agency – A company which collects debts on behalf of a creditor, or who buys the debt from the original creditors.

Default Notice – This must be issued by creditors in respect of debts covered by the Consumer Credit Act 1974 before any further action is taken.

Direct Debit – The account holder instructs the bank or building society to comply with requests from a third party to make a series of payments to them.

Downshifting – Making major changes to one’s lifestyle caused by accepting a reduced level of income.

Hire Purchase – An agreement where goods are hired for an agreed period, at the end of which the hirer has the option to purchase.

Individual Voluntary Arrangement (IVA) – A means of protecting yourself from your creditors by entering into a legally binding agreement which is supervised by an Insolvency Practitioner. Often seen as an alternative to bankruptcy.

Irregular Bill – An occasional expense e.g. TV licence, car tax etc

Joint & Several Liability – If two or more parties enter into a credit agreement they will each be liable for repaying the whole amount borrowed.

Late Fees – Fees added to the amount owed by the debtor when payments are late and where such fees are allowed for in the original contact.

Maximising Income – Increasing your income.

Monthly Expenses – The amount of money needed each month to pay your rent or mortgage, your gas, electricity and water, your food and other living expenses.

Non-Priority Debts – Non-priority debts are those where the creditor cannot deprive you of liberty, home or essential goods and services

Priority Debts – Priority debts are those where non-payment gives the creditor the right to deprive you of your liberty, home or essential goods and services.

Pro-rata Payments – Payment made to creditors based on disposable income – larger debts mean a larger proportion of the disposable income – smaller debts = a smaller portion.

Repossession – Process by which a creditor with a loan secured on house or goods (e.g. car) can take possession if you do not maintain agreed payments.

Secured Loan – Where the lender has a legal charge on assets (usually a house) giving rights of repossession over that asset if payments on the loan are not maintained.

Standing Order – This is an instruction signed by an account holder ordering a Bank or Building Society to make regular payments from an account of specified amounts on specified dates.

Term – The period of time between the loan start date on the legal documents and the date the entire balance of the loan is paid off.

Unsecured Loan – A loan that is not secured on property or goods

Warrant of Execution – This is issued by the County Court at the creditors request allowing the court bailiffs to attempt to take and sell goods and use the proceeds to pay the debt.

Welfare Benefits – State funded allowances paid to those in certain defined circumstances including low income and disability.